Rising number of college graduates increasingly among ranks of bankrupt

By YLAN Q. MUI, WASHINGTON POST

Published 7:36 pm, Wednesday, September 14, 2011

College graduates are the fastest-growing group of consumers who have filed for bankruptcy protection in the past five years, according to a new study by a financial nonprofit group.

The survey by the Institute for Financial Literacy, released this week, found that the percentage of debtors with bachelor's degrees rose from 11.2 percent in 2006 to 13.6 percent in 2010. The group tracked similar but smaller increases in consumers with two-year associate and graduate degrees. Meanwhile, the percentage of debtors with high school diplomas or who did not finish college declined.

Footage of I-10 closed and the trafficGodofredo Vasquez, Houston Chronicle

North Texas storms continueFox4

AT&T Names First Cities to Get 5G NetworkWibbitz

Bridging police & young minority studentsFox 26 Houston

The 'Black Panther' effectFox 26 Houston

100 Boys March against violenceFox 26 Houston

Isiah Factor Uncensored celebrates crawfish seasonFox 26 Houston

NASA engineer approved for proton therapyFox 26 Houston

10 p.m. Feb. 20 FOXRAD ForecastFox 26 Houston

'No guarantee'

"We're told that if you do go and get advanced education, you're going to be almost guaranteed this economic success," said Leslie Linfield, the group's executive director. But the recession proved that "higher education was no guarantee that you weren't going to be at risk."

According to government data, bankruptcies spiked in the years following the financial crisis, peaking at 1.5 million in 2010. Robert Lawless, a bankruptcy professor at the University of Illinois, attributed the rise in filings to the contraction in available credit as lenders tightened underwriting standards and lowered loan limits. That left many cash-strapped consumers with no way to continue financing their lives.

The government does not track filers' demographic data. But Linfield said the groups that have historically been most affected are low-income consumers without college degrees. They still account for the largest share of bankruptcy petitioners: Linfield's research found that 38 percent of debtors make less than $20,000 and about a third have only high school diplomas.

But Linfield said the recent increase in the number of bankruptcy filings is driven largely by wealthier, more-educated households. The percentage of debtors with bachelor's degrees peaked in 2009 and inched down in 2010. Those with graduate degrees jumped from 4.9 percent in 2006 to 6.7 percent last year. And those earning more than $60,000 rose from 5.5 percent to 9.2 percent.

Older debtors

Linfield said she is also concerned about the age of debtors. Over the past five years, the number of consumers filing for bankruptcy between ages 18 and 34 has fallen 31 percent, her study found. Meanwhile, the number of people 55 and older, who have less time to recover financially, has jumped 25 percent.

The group surveyed 50,000 consumers who participated in credit counseling or financial education courses, a requirement for those seeking bankruptcy protection. They account for 3 percent of bankruptcies filed in 2010.

Typically, credit cards and other unsecured loans force most people into bankruptcy, Linfield said. But she thinks hefty mortgages and falling home values contributed to the spike in filings among wealthier households and college graduates. More than 70 percent of consumers in the survey said they were filing for bankruptcy protection because they were overextended in credit, up from 63 percent in 2006. Reduction in income moved from third to second place.